Skip to comments.Rusty Thinking on Steel Tariffs
Posted on 11/14/2003 9:22:08 AM PST by 1rudeboy
Theres no such thing as a do-over in politics, but President Bush is about to get a rare second chance to make the right decision.
In March 2002, the Bush administration imposed a tariff of up to 30 percent on several imported steel products. The president has the option of eliminating those tariffs. Doing so would undo some of the damage the tariffs have done to our economy, smooth over relations with our trading partners and strengthen the administration's free trade credentials. In retrospect, Bush's decision seems more political than economic. After all, the tariffs offered little hope to revitalize the faltering steel industry. But politically, the tariffs seemed to offer Republicans some potentially important votes in the 2004 elections in steel-producing swing states like Pennsylvania, West Virginia and Ohio.
Bush's gamble appears to have backfired. In August, the United Steelworkers Union threw its support behind Democratic presidential candidate Richard Gephardt, an early endorsement that signals the union will work hard to defeat Bush next year.
Domestically, the steel tariffs have hurt more workers than they have helped. That's because industries that use steel to manufacture other products such as auto parts, appliances and buildings produce more products and employ more people than the steel industry does. In fact, according to the Consuming Industries Trade Action Coalition, for every employee in the steel-producing industry, 59 work in the steel-using industry. The tariffs increased prices in these industries, lowering demand. That's why the Institute for International Economics estimates that as many as 52,000 jobs have been lost in the steel-using industry since the tariffs were enacted. Eliminating the tariffs would help strengthen the manufacturing sector by restoring some of these lost jobs.
Although they harmed our economy, the tariffs offered little hope of boosting the steel industry. Even if foreign imports were completely prohibited, the steel industry would remain inefficient. One reason is that steel makers have high fixed costs, including overhead costs that don't change no matter how much -- or how little -- steel a company is rolling out. To be competitive, industries with high fixed costs should have only a few large firms. That's why there are three American automakers, not 33. But steel tariffs prop up inefficient firms, allowing them to remain in business even though they're actually losing money. In effect, they're being kept alive by corporate welfare.
Internationally, the steel tariff succeeded only in angering our trading partners and injuring our credibility in the global market. The administration was blindsided by the reaction it received both at home and abroad. Our international trading partners were livid, while domestic companies that use imported steel demanded exemptions.
Almost immediately, the administration started doling those exemptions out. Countries that held trade agreements with the United States were completely exempt. Australia received an 85 percent exemption (without it, Australian exporters could have lost up to $450 million per year). Several other countries were granted exemptions and several American companies, such as Caterpillar, were given exemptions for the imported products they use.
Despite the administration's attempts to mitigate the damage of the steel tariffs it had approved, a number of countries brought a case against the United States before the World Trade Organization claiming that the steel tariffs violated WTO rules. Predictably, the WTO ruled against the United States in July. That decision paved the way for the European Union to impose $2.2 billion in tariffs on American products.
If these retaliatory tariffs were implemented, they would harm American companies in politically important states. That's bad news for President Bush's re-election bid, and even worse news for the employees in these companies. Undoubtedly, these tariffs would force firms to reduce production. That means less work for existing employees, or job losses in the manufacturing sector. Thus one bad idea could hurt the economy twice.
Last year, Bush put politics above economics. For the sake of the American worker and our credibility with U.S. trading partners, Bush now should put economics above politics by repealing the tariffs he imposed on steel imports last year.
Sara Fitzgerald is a trade policy analyst in the Center for International Trade and Economics at The Heritage Foundation. Aaron Schavey is an assistant professor of economics at Bethel College.
originally published on Fox News
Yep, this special-interest pandering is certainly where the Administration went wrong.
Instead, they should have levied a relatively-low (10~15%), flat-rate "revenue tariff" on ALL imported goods. As James Madison noted during passage of our nation's First Federal Revenue Law, "A single, uniform tariff... was consistent with the principles of free trade."
And the proceeds from the tariff could have been used to finance further reduction of othr forms of domestic taxation. This would produce the much needed domestic economic stimulus that has been promised without encumbering the Treasury with record levels of additional debt.
Sadly, the Bush Administration doesn't exhibit very much of the wisdom of our Founders.
His policies are much more guided by manipulative special interests.
In its ideal form, it is applied uniformly and across-the-board on ALL imported goods, regardless of nation of origin, with absolutely no exemptions and no add-ons.
Revenue tariffs are also essentially self-capping.
At low rates, revenue will increase as the tariff rate is increased.
However, if the tariff rate is increased too much, revenues will begin to decline as trade excessively diminishes.
It is that "optimal" rate level that maximizes revenue that we should strive for. That will provide the best opportunity to decrease other forms of domestic taxation.
Note, Heritage's authors did not do any original research, but instead, here appears to rely on an awful lot of phony secondary reports and studies by the anti-tariff side...look at the auto anti-tariff group, and CITAC which was thoroughly debunked over its MANY falsehoods:
Wednesday, October 8, 2003
CLEVELAND - The United Steelworkers of America (USWA) today called statements included in a press release issued by the Automotive Coalition on Steel Tariffs on Wednesday as "patently false and blatantly misleading."
The press release insinuates that tariffs imposed by the Bush Administration on certain steel imports have caused Metalydine to lay off 1,650 USWA members at its Minerva, Ohio plant, cancel all scheduled 2003 wage increases and reduce capital investment.
"The Minerva plant employs less than 200 hourly workers in the first place," said USWA District 1 Director David McCall, "and in fact the company has been recalling previously laid-off USWA members there."
McCall dismissed the anti-tariff groups claim that 2003 wage increases for USWA members have been cancelled is completely false, and said there is no evidence that the company has scaled back on its investment in Minerva.
"The Automotive Coalition on Steel Tariffs clumsily and misleadingly attempted to use Metalydine as evidence that the Presidents policy on steel imports isnt working," McCall said, "when in fact the steel tariffs are working exactly as intended."
McCall pointed out the results of a recent review of the impact of the tariffs implemented in March 2002 conducted by the U.S. International Trade Commission (ITC):
Steel prices have stabilized and many domestic producers are returning to profitability. The domestic industry is undergoing the most significant consolidation and restructuring in decades. Labor unions and steel companies are working together to reach groundbreaking agreements that have dramatically streamlined operations, reduced costs, improved productivity and profitability, and helped facilitate industry consolidation. Bankruptcies and layoffs have slowed.
Also, in action notable for its rarity, the ITC launched an investigation into a "tip sheet" issue by the Consuming Industries Trade Action Coalition (CITAC), which encouraged its allies to exaggerate claims about alleged economic hard done by the tariffs. Last week, the ITC sanctioned CITAC's lawyer for disseminating the tip sheet.
"The absurd claims leveled today by the Automotive Coalition on Steel Tariffs are another example of the pattern of deception being employed by opponents of the tariffs, who are apparently resorting to blatantly misleading propaganda," McCall said.
As reported by both the Associated Press and The New York Times, the tariffs "have not significantly hurt small U.S. steel-consuming businesses." Instead, they "offered a counterpoint to growing complaints from small- and medium-size American manufacturing companies that use steel." The ITC investigation into the effects of the safeguard measures on steel- consuming industries concluded that:
Many steel-consuming companies "had difficulty distinguishing between the effects of the safeguard measures and other changes in market conditions." "Overall sales and profits increased, while capital investment fell, for most steel-consuming industries in 2002/03 (the year following the imposition of the safeguard measures) compared with 2001/ 2002 (the year preceding the safeguard measures)."
"In many cases, employment fell by a greater amount (and percentage) in the year before the safeguard measures were implemented than in the first year after they were implemented."
"A majority of steel-consuming firms indicated that neither continuation or termination of the safeguard measures would change employment, international competitiveness, or capital investment."
For more information about the importance of continuation of the Presidents program of tariffs on certain steel imports, visit www.uswa.or
As for the ITC study, it was neutral on the issue, although the Chicago Tribune claimed that it cost us $30-odd million. I'll have to read it to be sure.
Coming back to the tariff, if the EU follows-through on its threat to impose between two and four (depending on your source) billion dollars in sanctions on American exporters in order to retaliate against the U.S. for imposing the steel tariff, why are the protectionists here just shrugging their shoulders? After all, these are high-paying manufacturing jobs (to use language a protectionist regularly uses).
Rather, one 'special interest' shows that the other...i.e., the Steel Import Lobby, has hired/paid for/and LIED as Dick Cheney would say, BIG TIME to confuse gullible voters. And CITAC cannot gainsay the facts...so it invents a whole slew, and then broadcasts them on the internet far and wide, and in multiple venues...and even otherwise reputable outfits like Heritage picks them up and reiterates these falsehoods as truth. Well, they have been debunked. Read those SPECIFICS. And perhaps the clearest sign of all was when CITAC was caught circulating a memo among steel importers to hype and exaggerate the numbers of layoffs and falsely blame the tariffs for any such. Hello. They have been caught RED HANDED attempting to mislead the public. They are done.
The protectionists here are NOT just shrugging their shoulders. They are basically in a position to say, "I told you so." This is a tradewar...and we didn't start it. And they are escalating rapidly in the hopes that we will cave on defending our national sovereignty and our markets. Will We?
And again, what else would you expect AISI to say? It is lining its pockets with our money.
Not in escence it is just the Free traders are more effective in getting their policies enacted.
Clearly if they were right they would not have to lie and henceforth when I see a Free Traitor promulgating falsehoods whether from it be the Smoot Hawley tariff caused the great depression or that the Steel tariffs were a harm to the economy I will be calling the lirs what they are.
If they had the truth, they wouldn't have to lie. CITAC HAS been completely discredited by its blatantly dishonorable conduct. And as to the ITC's assessment that there were $30 million in 'costs' to the flexibly-deployed interim tariffs, they also admitted that had there been no tariffs, it clearly would have been far worse for the U.S. economy...with hundreds of billions of U.S. capital at risk with all 35 remaining steel firms collapsing due to unfair trade practices. Trade practices which are now being punished on the appropriate malefactors. And these are the same foreign malefactors coaxing the WTO to sanction the U.S. for defending itself...as it is ENTITLED under the WTO charter to do. The Trib didn't pick up that part. Gee, wonder why.
Since when was that in doubt after CITAC was caught red-handed LYING? Shame on Heritage Foundation's authors, and all others who bought...uncritically... into the ANTI-AMERICAN positions of this FOREIGN ENTITY LOBBY.
As Mark Twain said once upon time..."The thirteenth stroke of a clock is not only false of itself, but casts exceedingly grave doubts about the veracity of the previous twelve!"
Bingo. Hard-left talking points are fine here if they fit a particular agenda, aren't they?
But we know better.
Maybe we should just tax consumption at the federal level. That way everything gets taxed uniformly.
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